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The Higher ED Blog: A new Walmart is not going to help your local businesses

Michelle Madden / March 21, 2016

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The Higher ED Blog: A new Walmart is not going to help your local businesses

Walmart is a behemoth: 11,500 stores under 72 banners in 28 countries. One of those countries is Canada; Walmart entered this country more than 20 years ago and has built 400 stores from Newfoundland to British Columbia, and as far north as Yellowknife. That total includes 15 new Supercentres just opened in January. There’s hardly a population centre in Canada without a Walmart, including centres as small as Digby, NS, population 2,152 (18,036 if you include the whole of Digby County).

By now we’re all familiar with Walmart’s low cost message and sunny logo. That kind of positive branding, combined with the chain’s selection and ‘everyday low prices’, makes it hard to resist. When a Walmart sets up in a small community—like it just has in Trail, BC; Edson, AB; and Winkler, MB—locals divide into two camps. Some think it will be good for local businesses, drawing consumers from surrounding communities who will also shop at local stores while they’re in town. Others see it as a death knell, expecting Walmart to poach the limited number of consumers with their impossible-to-match prices. So which is it?

That’s one of the questions Laura O’Driscoll wanted to answer in her major research paper for the University of Waterloo’s Local Economic Development master’s program. When she heard that a Walmart was going to be built in a small Ontario community, she saw an opportunity to study the impact of the new store on local businesses.

Negative impacts of Walmart widespread

Laura started with some research on the impact of Walmart on other communities. Her findings are remarkably stark, with study after study showing that a new Walmart can be devastating for many local retailers, but especially those who sell similar goods like groceries, building materials, sporting goods, electronics, drugs, and giftware. The new store does not expand the market for these businesses, and in fact increases their probability of closing down. Sales at local eating and drinking establishments can get a boost, but a Walmart locating on the edge of town can draw traffic away from all types of businesses in traditional downtown shopping districts. One study from 1997 estimates that some small towns can lose up to 47% of its retail trade in the decade after a Walmart arrives.

For those thinking that the loss of a few competing stores is outweighed by a gain in jobs, think again. For every Walmart job, 1.4 local retail jobs are lost, reducing the average retail employment in the community by 2.7%. Further, many of the Walmart jobs are part time, low wage, unfair to women and other groups, and unsafe.

Local business perceptions and impacts

The community Laura studied (which will stay unnamed to protect the privacy of the businesses) is typical in that it has a traditional core with small scale retailers, and large chain stores on the outskirts. To keep her research manageable, she focused on the downtown core and delivered two surveys to the 34 businesses, one before Walmart opened and one three months after it opened.

The first survey gauged the business owners’ perception of how Walmart would affect them and other local businesses. She received 16 responses. When asked about the impact on their weekly sales, six thought Walmart would have a negative impact, four expected a positive impact, and three expected no impact. Of those expecting a negative impact, most expected a 6-10% decrease in weekly sales but no impact on staffing levels. All thought there would be some kind of impact on other businesses, but only three expected that it would be positive. Five owners implemented precautionary adaptation strategies focused on customer service or their product base.

The second survey showed that Walmart was a greater draw than expected. Three months after Walmart opened, three local businesses had closed down, three businesses saw a decrease in weekly sales, and two saw an increase in weekly sales. Others weren’t sure if there was an impact from Walmart, or reported no change.

The three businesses that closed down included two established retailers that had been open for 10 and 20 years, and a dollar store. One store owner thought the extra traffic from Walmart would be positive for their business and others in town. Another only expected a small decrease in sales and did not bother to adapt. The dollar store actually closed down before Walmart arrived because it didn’t think it could compete.

Of the businesses with decreased sales, one store saw a 15-20% drop in sales. Another had a 6-10% drop in sales and had to reduce staff from two full time, three part time, and one full time seasonal to one full time, three part time, and one part time seasonal. Both tried to compete by improving customer service, but felt that the strategy was unsuccessful because they didn’t get enough traffic to demonstrate the knowledge and service to customers. A convenience store also noticed a 6-10% decrease, particularly noticing a drop in milk sales.

Two businesses weren’t sure if Walmart had an impact, but their survey responses did show some repercussions. A pharmacy reduced their employee structure from two full time, one part time, and one full time seasonal to one full time, three part time, and one part time seasonal. A paint store owner noticed reduced sales in their painting tools and accessories. They initially expected an increase in traffic, but that did not come to pass.

Two more businesses changed ownership: an electronics store and a clothing store. In the first survey, the electronics store owner expected no change in their weekly sales and the clothing store owner expected a 6-10% decline. Laura wasn’t able to determine if the changes in ownership were directly related to Walmart, but neither of the original owners indicated that they were planning to adapt.

One business saw no change in sales after Walmart opened. While the owner did not expect any change in the first place, they did renovate the store and started to focus more on special ordering, which may have prevented negative impacts on sales.  That said, the owner did reduce staffing from four to three part time employees. They did not say if this was related to Walmart.

Only two businesses improved sales. A toy store saw a 15-20% increase in weekly sales. Before Walmart opened, they expanded by 1500 square feet and started offering hands on demonstrations of their products. A gift shop didn’t comment on exactly how much sales increased, but the owner did say that they started making unique giftware items not found anywhere else.

Interestingly, none of the respondents in the second survey thought Walmart was having a positive impact on other businesses in the community, compared to three in the first survey.

Businesses must adapt to survive

Laura’s study shows that Walmart can have a serious negative impacts on local retailers, forcing them to cut jobs, survive on lower sales revenues, or close down entirely. It is worth noting that the three retailers that improved or maintained sales in the months after Walmart’s arrival adapted their business practices to compete against Walmart. This is unlikely to be a coincidence and it’s a strategy recommended by other researchers who have explored this topic.

Fortunately, there are some steps communities can take to help their retailers compete against Walmart and other big box retailers. First, communities should not incentivize or otherwise try to attract a Walmart. If Walmart is coming or already open, municipalities can help their businesses by offering financial or educational assistance to help them adapt. The financial assistance may be a grant to partially cover renovations, while the educational assistance might be in the form of a workshop on product selection, marketing, customer service, or business efficiency.

 

About the authors

Michelle Madden is the editor of Higher ED. She is also the Outreach Manager for the Economic Development Program and a graduate of the LED master’s program.  She has authored many Higher ED articles sharing information relevant to economic development practitioners, and has written several on behalf of students. She has published several of her own blogs on economicdevelopment.org as well. Follow her on Twitter at @michelle_mad.

Laura O’Driscoll is a graduate of the Local Economic Development master’s program. She is currently the Business Development Manager for Moving By Design Inc. Before that she was the Program & Business Initiative Administrator for Making Waves Swim School. She lives in Mississauga with her husband and dog.

 

About the series

Higher ED: Insights for the Next Economy is a platform for students, guest speakers, staff and faculty of the University of Waterloo’s professional and graduate economic development programs to share knowledge with the field at large. The series takes works destined for an academic audience and reworks them into a fresh, easy-to-digest blog article.

Established in 1988, the Local Economic Development program is the only master’s program in Canada devoted solely to local economic development. It offers a balance between theory and practice by combining coursework, a major research paper, an internship, and weekly seminars featuring guest speakers. Students are prepared for careers in local, community, or regional economic development.

The Economic Development Program is a nationally-accredited provider of professional training. It delivers certification programs and seminars that offer a deep understanding of the Canadian context in a convenient block format. Peer learning is combined with informative lectures and practical case studies to provide dynamic instruction that is beneficial for junior and senior-level practitioners.

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